Next Steps on Clean Energy Trade

Earlier this week, at a meeting in Russia, the leaders of APEC (Asia Pacific Economic Cooperation) agreed to reduce tariffs on fifty-four different types of environmentally friendly goods.  The countries, which include the United States and China, agreed to specific maximum tariffs and to a deadline for the changes. This is great news. The World Bank has estimated that eliminating barriers to trade in clean energy technologies could boost that trade by fourteen percent.  And as my colleagues and I argued in an in-depth study two years ago, cross-border trade and investment is essential to accelerating not only deployment but also innovation in clean energy.

The big question now is what ought to come next. There are three directions – not mutually exclusive – that the United States and others ought to be looking at.

Broaden the Scope

The APEC countries make up roughly half of the global economy. That makes the announcement important. Extending it to the other half of the world would be a great next step. Bringing in India, Europe, and Brazil, all economic, energy, and (unfortunately) emissions powerhouses would be particularly valuable. This sort of effort could be pursued through the G-20, which includes many APEC members and many of those who were not part of the new announcement. It could also be pursued through the global climate negotiations, though I suspect that might become a technical mess. Other countries could also take the APEC lead and unilaterally reduce tariffs accordingly.

The scope could also be broadened to a host of critical clean energy technologies that are not included. Fifty-four types of goods may sound like a lot, but the specifications are narrow, which means that the total is a bit less than one might expect. Liberalized trade in bamboo flooring may be progress but it isn’t going to do anything about climate change.

Deepen the Measures

The APEC agreement targets tariff barriers – explicit levies on imported products. Many of the biggest barriers to trade and investment, though, are so-called non-tariff barriers (NTBs). These include things like local content requirements that require projects to use local equipment. (Such requirements can effectively function like infinitely high tariffs.) They can also include complex regulations, particularly in the name of quality control, that effectively shut out foreign operators. Extending the APEC measures to appears to be on the agenda for future discussion. Negotiations will not be easy, but the payoff could be big.

Stiffen the Rules

The commitments made at APEC are important, but there are no penalities to those who do not follow through. For years, the World Trade Organization (WTO) has been engaged in negotiations aimed at lowering barriers to trade in environmental goods and services, all of which would be binding. With the Doha round stalled, the environmental agenda hasn’t gone anywhere, but if negotiations can be unblocked, there’s a big opportunity for gains on clean energy. Working through the WTO would also provide a big opportunity to broaden the scope of the APEC effort.